Darktrace, a cybersecurity company, has reportedly decided to appoint Ernst & Young (EY) to conduct a third-party review of its financial calculations. This decision was made following allegations from New York-based Quintessential Capital Management (QCM) and other hedge funds, accusing the firm of following questionable marketing and accounting practices.
EY will provide an independent third-party review of the key financial processes of Darktrace. Quintessential has accused the FTSE 250 company of several charges including overstating of sales, margins and growth rates and has expressed skepticism regarding the validity of the firm’s financial statements.
Chief Executive and co-founder of Darktrace, Poppy Gustafsson, has stated that the company is operated with great integrity and has world-class technology.
The Chairman of the Darktrace board, Gordon Hurst, also expressed confidence that the company’s processes and control are above-board. He also claimed that the firm is awaiting the outcomes of the third-party review from EY to further strengthen this trust.
According to Grant Thornton, the auditor of Darktrace, the company would report the findings of EY’s review. However, these will not be ready in time for the half-year results which are to be announced in March, he clarified.
Meanwhile, the managing partner of Quintessential, Gabriel Grego, commented on their report in which they had flagged various instances of dubious transactions. He also expressed hope that the EY review will be of benefit due to its impartiality, granularity, and skepticism in providing insights regarding the alleged practices.
Another co-founder and major shareholder of Darktrace, Mick Lynch, is also facing extradition to the U.S. amid accusations of fraudulently raising the value of his previous company, Autonomy, further adding to the legal difficulties for the company. The shares of Darktrace have dropped by 17% to $2.5 following the 69-page report released by Quintessential.
Source Credit: https://www.theguardian.com/business/2023/feb/20/DarktraceDarktrace-hires-ey-short-seller-cybersecurity-quintessential